Lack of P3 bidders could delay 19 new schools

Matt McClure, Calgary Herald10.28.2013

Colleen De Neve/ Calgary Herald CALGARY, AB --OCTOBER 17, 2013 -- Construction workers worked on building an addition to Notre Dame High School in Calgary on October 17, 2013. (Colleen De Neve/Calgary Herald) (For City story by Trevor Howell) 00049893A SLUG: NEW SCHOOL CONSTRUCTIONColleen De Neve Colleen De Neve
/ Calgary Herald

Colleen De Neve/ Calgary Herald CALGARY, AB --OCTOBER 17, 2013 -- Construction workers worked on building an addition to Notre Dame High School in Calgary on October 17, 2013. (Colleen De Neve/Calgary Herald) (For City story by Trevor Howell) 00049893A SLUG: NEW SCHOOL CONSTRUCTIONColleen De Neve Colleen De Neve
/ Calgary Herald

Some Alberta school boards are worried the province will be unable to deliver on its promise of 19 new schools within three years because of tendering roadblocks.

When the government recently asked for submissions to design, build, finance and maintain the facilities in fast-growing suburban neighbourhoods, only one consortium — Calgary’s Gracorp Capital and Graham Construction — said it was interested.

Surprised officials with Alberta Infrastructure warned school boards two weeks ago of potential delays in the construction of badly needed spaces for students while they reconsider how to select who will build the facilities.

“There’s a limited number of contractors and they’re already busy with private sector and other government work,” department spokesman Tracey Larsen said in an interview.

“We’re looking now at the options we have and we’re still hoping to have those schools open by 2016.”

Among the schools the province wants built under its controversial public-private partnership or P3 model are eight facilities for elementary or junior high age students in Calgary, and two more in nearby communities.

John Wheatley, director of facility planning with Rocky View Schools, doesn’t know what he will do if the additional K-9 facility promised to Cochrane isn’t available on schedule.

Wheatley said the school division already expects it will have to add another 20 portables to a temporary school in the town over the next two years to accommodate surging enrolment.

“We’re running out of spaces to put students,” he said. “I hope there’s some panic at the provincial level.”

The new P3 proposal is part of Premier Alison Redford’s pledge in the last election to spend $2.4 billion to build 50 schools and modernize another 70.

While 19 facilities are included in this round of P3 schools, industry sources say another 10 were slated to be announced and built under public private partnerships starting next year.

The plans calls for industry to finance at least half the cost of construction and then be paid out over 30 years under a rent-to-own contract that also includes money for maintaining and renewing the schools.

A pioneer in Canada at using the P3 model, the Alberta government has always claimed it is a cheaper and faster way to build schools than conventional tendering.

Critics have questioned how it is possible for private industry to secure debt financing at rates lower than the province would pay. The latest hiccup also gives them reason to ask whether P3s are a quick fix to Alberta’s current classroom shortage in an overheated construction market.

“The only good thing about P3s is that it’s a way for governments to hide debt,” Liberal education critic Kent Hehr said.

“Ms. Redford’s in a pickle now because we need these schools desperately.”

The province’s plan had been to choose three P3 proponents to submit a price this fall, choose a successful bidder by next summer and start construction shortly after that.

Larsen refused to say what options the province is now exploring, but industry experts said they have suggested the province consider conventional tendering and debt financing for the schools or dividing the P3s into smaller groups to attract more bidders.

“They’ve found out the upper limit of what P3 procurement can handle in Alberta,” Clark Builders president Paul Verhesen said.

“It will be tight now, but not impossible to get these schools built on time.”

Verhesen said his firm, which is currently part of the consortium building a dozen P3 schools that are slated for completion next fall, didn’t submit a proposal this time because it just doesn’t have the additional capacity to take on another 19 facilities.

“To tackle this opportunity we would need another 2,000 people,” he said.

“We just don’t have those numbers, particularly key project managers, sitting on the bench waiting to get called in.”

Steve Skelton, president of HOCHTIEF PPP Solutions North America Inc. that is the lead partner on the current P3 project, said he warned provincial officials their new proposal might not attract much interest.

“We had some chats and told them we thought there would be some challenges,” Skelton said.

“With the industry being so buoyant, building schools on a low margin is not high on a contractor’s list.”

While the province could try and forge ahead with the one consortium that is interested, he said that could be problematic.

“It might be possible to benchmark, but it just opens you up to criticism that you’re not getting a competitive price,” Skelton said.

“It’s a question of public perception of the process.”

A 2010 report by Alberta’s auditor general of the initial 18 schools built under the P3 model found the government had overstated its savings but that its numbers showed it would spend $98 million less than the $752 million the conventional procurement process would have cost.

However, the province’s financial watchdog noted with caution that the government had not retained the documents it used to estimate maintenance prices over the contract nor had it validated its estimate of cost overrun risk if it built and operated the schools itself.

Kimberly Nishikaze, a spokeswoman with the auditor general’s office, said staff are currently taking another look at whether two subsequent P3 school contracts offered value for money to taxpayers and will make their report public next February.

While Larsen conceded the province can borrow money more cheaply than private companies, she insisted the overall efficiencies of P3s come from shorter design and construction periods and improved operations and maintenance processes.

“The government will only undertake a P3 project,” said Larsen, “if it costs less over the life of the contract than the traditional approach.”

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